Legislation to fully fund pensions, fix Tier 2 pensions and expand veteran eligibility heads to Governor
Last week, Cook County Board President Toni Preckwinkle applauded the Illinois General Assembly on its recent passing of fiscally responsible and sustainable pension reform legislation to ensure the County can fully fund its pension obligations.
“This is a financially prudent step toward confronting our pension challenges,” said President Preckwinkle. “I am very proud of our work over the last several years to increase funding by billions of dollars and this legislation will build on this progress. This all speaks to a stronger, more stable Cook County. I appreciate the hard work of our finance team, Senator Martwick and Representatives Evans and Burke.”
The County pushed for House Bill 2352 to build on the success of its supplemental contributions that have increased pension funding levels by $2.3 billion, with the system estimated to now have enough funding to cover 70.7% of its future liabilities – up from under 60%. The County has been making larger pension fund contributions than state law requires over the last seven years through an intergovernmental agreement (IGA) and wanted to make this temporary fix permanent.
To enshrine the County’s commitment to fully fund its pension obligations and avoid insolvency, the County worked with stakeholders to have the contribution schedule in the IGA codified in state statute to help reach a fully funded pension system in the next 30 years. The recently approved pension legislation will be covered exclusively by the County with no cost to the state and allows the County to use any funding source for pension fund contributions, not just property tax revenues to provide flexibility.
“This important legislation is the product of a lot of hard work between many stakeholders and speaks to our commitment to strong fiscal management and long-term stability,” said Cook County Chief Financial Officer Tanya Anthony. “This is good policy that puts the County on a sustainable and responsible path toward full pension funding.”
The legislation also works to address a potential issue under the current statute where increases in the pensionable salary cap for members hired after January 1, 2011 (Tier 2) have not kept pace with increases in the Social Security Wage Base. The County’s proposed reform is an effort to ensure that the County is consistent with Federal Safe Harbor guidance which says pension benefits provided to an employee instead of Social Security must be comparable to the value of Social Security benefits to make sure employees are not receiving less than what they would under Social Security.
When adjusted for inflation, the County expects this Tier 2 fix to cost approximately $3 million each year over the next 30 years for a present value cost of $98.8 million. The total pension payments, including the supplemental payments, can fluctuate but has generally been around $500 million a year. The Tier 2 costs, which will be a part of these payments, represents a minimal portion – less than 1%.
“We believe dealing with this issue now is the right thing to do and addresses a problem before it gets worse,” said County Deputy CFO Dean Constantinou. “This will also help recruitment efforts and encourage public service by saying the County is taking steps to make sure your retirement is funded fairly and sustainably.”
The comprehensive legislation also expands eligibility for military/veteran employees to accrue retirement service credit for military service. Current statute allows these employees hired before 1993, with 25 years of service, to apply for creditable service of up to two years of military service. This new legislation expands eligibility to military/veteran employees hired after 1993.
“This bill takes meaningful and fiscally responsible steps to shore up the County’s pension fund, address Tier 2 pensions and ensure our veterans are receiving credit for military service,” said sponsor State Senator Robert Martwick.
The legislation now goes to Governor J.B. Pritzker’s desk for further consideration.
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